What are the impediments to growth?

Slovak daily SME came with an unsurprising answer citing the opinion of the Slovak Chamber of Commerce and Industry.

According to the article (in Slovak), the three biggest problems in the economy are: enforcement of law, education, and export promotion. Of course, courts turned out to be the worst part of it. Therefore, we will look at the numbers there in more detail.

Heritage foundation measures the Index of Economic Freedom, assessing the main areas that affect the business environment. I chose indicators of property rights enforcement and corruption to compare their values in the Czech Republic, Hungary, Poland and Slovakia.

Another indicator would be the World Bank Governance Indicators dataset, compiled into a neat rule of law interactive map.

Looking at the graph, there is not too much progress visible in the last twelve years, comparing Slovakia to its neighbors. However, there is a slight improvement in property rights and corruption absolute terms from 2005 to 2007. Nevertheless, law enforcement really seems to be a "bottleneck" of our economy.

Policy prescription in this regard would be a transparent anti-corruption legislation, dealt with in, for instance, Polinsky, Shavell (1999), and a very profound change in judicial execution of law, dealth with in Kühn (2005).

On Comparing Wages Across Central Europe

A recent study by the Slovak Ministry of Finance (in Slovak) revealed problems in inter-temporal comparisons of 'gross wages'. The trick lies in the definition of gross wage, which varies over time as social security or other payments are shifted from employer to employee or vice versa. The same problem, with the addition of currency and price level conversions, appears with inter-country comparisons.

For these reasons, comparing total labor costs (or 'super-gross wages'), or just net wages seems to be a much more reasonable solution to assess living standards of the local working populations. Here's the 2006 data for V-4 countries: an average monthly salary of an employee in the economy, first converted into euro according to official 2006 yearly exchange rates, and then adjusted for the respective price levels (of 2004) relative to the European Union average.

	--SGW	----GW	---NW
CZ	1854	1374	1064
HU	1531	1136	750
PL	1634	1356	920
SK	1250	988	768

Note that GW stand for gross wage's purchasing power in euro, SGW for 'super-gross wage' (including employers' social security contributions), NW - net wage. SGW and NW were calculated according to the OECD information on labor tax wedges in 2006.

An informed observer might spot that the purchasing powers of average wages across V-4 countries do not correspond to GDP/head rankings of these countries. Slovakia, for example has higher GDP/capita in PPS than Poland, but lower wages. In order to explain these differences, one ought to look closer at the labor productivity statistics, as well as the local definition of a 'salary' (as opposed to other income).

Baťo reviews Taleb's "The Black Swan" (in Slovak)

http://ekonomika.etrend.sk/104468/slovensko/cierna-labut
Links to other reviews of this book published in respected English-written periodicals may be found at Nassim Talebs's home page.

Slovakia on the map!

Three maps for you today, no rocket science, just to think about geo-politics and geo-economics. For better details, click on the maps, or check out the links (especially the fancy interactive one:)).

1. Global Peace Index (source: Opinio Juris)

















2. GDP per head - regional figures (source: Regional Policy - EC and The Slovak Europe Blogspot)

























3. Doing Business Interactive Map (source: Opinio Juris)
















Basically, we are a peaceful country, with one thriving region and pleasant business enviroment. People are complaining all the time, and GDP per capita makes one vigilant, but it is not that bad in the world context either.

A nice one, by Alesina on the EU economy

http://www.nber.org/reporter/summer06/alesina.html

Quarterly YoY Real GDP Growth - EU-25, Czech Republic, Slovakia (in %)